Refund or Input service tax eligilibility

[Guest]

Factory having Andhra Pradesh and corporate office having in Chennai. We are paying service tax along with monthly office rent to ST registered vendor. We are taking service tax portion as a input tax and adjusting with excise liability. Recently Excise department observed and not eligible for input tax due to office rent is not relevant to product manufacturing.

We not providing any service related activities. we are only product manufacturing only. This service tax portion also not revenue expenditure. In this case can I get refund or Can I accumulated in ER1 return.?. Kindly suggest further how can I proceed.

[Rajagopalan Ranganathan]

Sir,

Your factory is located in Andrapradesh and your corporate office at Chennai. I resume that your factory in Andhrapredesh is funcioning in your own building and no rent is paid for the factory. The rent paid by you to your corporate office and ST payable on such rent is available to your factory as credit for discharging excise duty on your manufactured product cleared from your factory.. As per rule 7 of Cenvat Credit rules, 2004 service tax paid on input services can be distrubuted by your officer at Chennai if such input service is attributable to your factory. In your case rent is paid to your corporate office at Chennai can in no way be treated as input service attributable to your factory at Andrapradesh. Hence in my view the objection raised by the Department is sustainable.

[Ganeshan Kalyani]

Sir, administration of a business is essential part of a business activity. Unless there is a office where customers would come for a business meeting and struck a deal for purchase or sale there cannot be further action of production or related activity. Thus there is a nexus on rent paid for Head Office at Chennai to the manufacturing activity that is taking place in your factory at Andhra Pradesh. The service tax credit on the rent paid for HO can be distributed by ISD mechanism. You must convince the Authority about the nexus in service with production. Thanks.

[KASTURI SETHI]

Sh.Narayana gonoguntia Ji,

I concur with the views of Sh.Ganeshan Jalyani, Sir. Somewhat relevant judgement is appended below :

HINDUSTAN ZINC LTD. Versus COMMISSIONER OF CUS. & C. EX., JAIPUR-II 2012 (3) TMI 367 - CESTAT NEW DELHI - 2013 (291) E.L.T. 464 (Tri. - Del.)

[Suryanarayana Sathineni]

Dear Friend,

While concurring with the views of Mr. Ganesh Kalyani, I give the following :

1. The ST paid on rental charges for your HO was related to carry out the business of the company.

2. If your company has multiple mfg. units, then if you registered as ISD under Centralized Registration, you may

have to distribute the credit of the ST being common input service to all your units in terms of the formulae prescribed under Rule 7 of CCR,204.

3. If you have only one manufacturing unit which is also registered under Service Tax, then you can avail the credit

of that ST paid on rental charges can be availed as credit in terms of the inclusive part of the definition as it related

Business activities.

Best Regards

Suryanarayana

 

[Ganeshan Kalyani]

Sir thanks for strengthening the reply.

[KASTURI SETHI]

Dear Sh.Kalyani Ji,

We cannot forget that availment of cenvat credit is across the board w.e.f. 10.9.2004. The words, "Directly or indirectly in or in relation to the manufacture of the dutiable final product' makes the manufacturer eligible for credit of input service. The word 'INDIRECTLY' has wider scope. Moreover, Govt. has made Cenvat Credit Rules very liberal.

[Ganeshan Kalyani]

Sri Kasturi Sir, fully agree with you the criteria 'in or in relation to manufacturing activity' has made the provision easy as well as tough. At times the department rejects the credit and the assesse has to prove how the service is in relation to. Because from assesse point of view all services are in relation to manufacturing but the department will allow the credit only when the nexus is justified. Thanks.

[KASTURI SETHI]

Dear Sir,

I agree with you in toto. The department's attitude is always pro-revenue. Their intention is also to save their skin. So we can hope natural justice only in CESTAT. Pl. note that such attitude of the department create work for us (Consultants and advocates). So we should be thankful to the department !!!.You know very well the percentage the demands decided in favour of the department. This is the reason behind this.

[Ganeshan Kalyani]

Yes Sir I agree with you. Authority will be pro-revenue and assessee are safeguarding their interest and consultants have to balance both. So it is tough job for us to satisfy both. For us revenue is one eye and assesse is second eye. Both the eyes are important for us. I love this job. Thanks.

AI Summary

Nexus of head office services to manufacturing determines eligibility for input credit and ISD distribution under Cenvat rules. Whether service tax paid on corporate office rent is available as Cenvat credit for discharge of excise duty depends on demonstrating a nexus between the head office service and manufacturing, and on correct distribution through the Input Service Distributor mechanism under Rule 7; absent such attribution the department's objection that the rent is not relevant to production will sustain and credit may be disallowed.